May 2023


Asset Management Amid Long-Term Inflation

Today’s complex market environment has been challenging for asset management. However, at this year’s Milken Institute Global Conference, State Street Global Advisors President and CEO Yie-Hsin Hung said opportunities may come along soon.

The stubborn inflation and high interest rates of the past couple of years have been challenging for asset managers. But as the industry adapts to this new inflationary, fast-moving environment, State Street Global Advisors President and CEO Yie-Hsin Hung says asset managers must remain vigilant, nimble and “ready to pivot.” “This is one of the most difficult environments to predict or forecast in terms of what the future looks like,” she observed, speaking at the Milken Institute 2023 Global Conference in Los Angeles. “We have to be ready to pivot when opportunities present themselves.”

Hung participated on the panel, “Asset Management in Incalculable Times” as part of Milken’s Global Conference, which this year was themed “Advancing in a Thriving World.” She was joined by Kamal Bhatia, Global Head of Investments at Principal Asset Management; Mike Gitlin, Incoming President and CEO of Capital Group; Katie Koch, CEO at TCW; and Harvey Schwartz, Carlyle CEO.

In its 26th year, the Milken Global Conference featured more than 3,500 C-suites and influencers, including asset managers, asset owners and alternative asset managers. Below are key themes discussed in the panel.

Current market environment
The current volatility emanating from the banking sector is different from the 2008 financial crisis. The system has shown that it can handle and digest current market issues, due to the interconnectivity of the market and the regulatory tools now in place as a result of the Global Financial Crisis (GFC). Global Systemically Important Banks (GSIBs), like State Street, are in a stronger position now than in 2008, and have shown greater resilience than regional banks. Even though regional banks remain critically important to the economy, particularly for small business and areas such as commercial real estate, investors should remain cautious. Investing in regional banks is not a bet on the economy or the resiliency in the market, as their business model is dependent on the Fed to cut rates.

Investor behavior
It is a difficult environment to predict at this point, and we are paying attention to how investors are positioned. State Street recently launched three new indicators that enable us to further analyze institutional investor behavior and tolerance for risk. We’ve seen individual investors retreat from risk assets since March. Today, there is an enormous amount of cash sitting on the sidelines, and we still think it’s too early to see individuals reentering the equity markets.

Where is the market going?
Currently, there is a tremendous degree of complexity between inflation and economic stability, prompting uncertainty about market direction to remain high. The panel expects that there will be one more rate hike this year, and that the 2024 economy will grow modestly based on future rate cuts. Consumer spending is in decent shape and real wages are up. The higher volatility environment should still provide opportunities for equity investors, but it will also likely feature deeper drawdowns and shallower recoveries.

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